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The home buyer’s guide to insurance

Buying a home is an important investment that requires careful consideration and planning. Whether it's your first home or another vacation property, as you embark on the home buying journey, it's important to consider how insurance fits into the process. Issues like climate change and aging infrastructure have transformed the homeowner’s insurance market, making it harder to obtain a policy and more expensive to keep one in place. As such, it behooves potential owners to consider insurance options before committing to a home, no matter how great the architecture or location. By incorporating these five simple steps into your real estate purchase, you will make a more informed decision while house hunting and better protect your dream home once you have the keys. 1. Talk to your insurance broker before you sign the contract.Securing a homeowner’s policy is harder in today’s challenging market, especially if you are buying in a region prone to severe weather events. Before you submit a bid, contact your broker to get a location check so that they can let you know if either the specific address or general area is prone to insurance-impacting issues. Along with climate concerns and any claims history, carriers are looking at the type of home. For example, historic ones (infamous for costly rebuilds) and condominiums (known for leaks) can be less desirable than newer builds with up-to-date codes. You’ll have the results of your location check within a week, along with approximate premiums if coverage is possible. And if carriers have concerns about the property, you will find out what obstacles stand in your way, such as roads in fire hazard zones that are too difficult for fire trucks to access or a high likelihood of flooding. While this call is important for every buyer, it’s especially crucial for those buying a house sight unseen, as it’s another check against pitfalls down the road. Bonus tip 1: Before you make an all-cash offer or opt to forgo the mortgage clause in the contract, consider this: Banks won’t lend money to anyone without insurance (unless the buyer has permission to self-insure), and that clause provides some protection if you cannot otherwise obtain a policy. Once you sign a contract without a mortgage clause, you will have to go through with the sale regardless or forfeit your down payment even if you can’t get a policy. Therefore, an early call to your broker could help prevent such a dilemma. 2. Negotiate with insurance premiums in mind.What you learn from that location check can be used as leverage in your ongoing purchasing negotiations. In an area where insurance is hard to obtain, a seller might be willing to pay for any prerequisites to coverage—a backup generator or hurricane shutters, perhaps even fire-resistant landscaping—or reduce the asking price to compensate for the work you will have to do yourself. Either way, you can avoid incurring the additional costs connected with making the house insurable. 3. Stick with your trusted broker.Often, real estate agents suggest you talk with their insurance person to hurry the process along. In fact, that call might have the opposite effect as things can quickly get complicated when multiple brokers make inquiries to the same insurance company on behalf of the same homeowner. Here’s why: The manner in which a broker presents the property and homeowner to carriers greatly impacts the chances of obtaining insurance. And unfortunately, if a carrier declines to cover a property as a result of incorrect or badly-positioned information, your trusted professional’s hands are tied—it is legally impossible to overturn the decision. Bonus tip 2: If you are planning a major renovation before move-in, it is important that your broker knows, so they can speak to the carrier to incorporate whatever additional coverage might be necessary. Your broker should also review the insurance sections for all contracts with contractors and add any relevant certificates of liability and worker’s comp to the homeowner’s policy. 4. Don’t let cost be your sole consideration.Many people, after sparing no expense on their new house, suddenly become cost-conscious when they turn their focus to insurance. While that is understandable, you could be hurting yourself down the line. When comparing policies, you want to make sure your carrier is in good financial standing and is known for paying claims. Also ask, in the event of a catastrophic loss, whether they will replace your home to the same standards or simply fix it with whatever material is least expensive? Ultimately, the choice is yours but it’s worth knowing what you are —and are not—paying for. 5. Add as many layers of protection as you can.In the end, insurance carriers want to do everything possible to prevent loss, and it is in your best interest to consider their recommendations for how to do so. These might include clearing areas of brush, installing shutters, or strapping items down prior to a storm. Likewise, they will often suggest you install smart safeguards, from low-temperature sensors to water leak detection systems to centrally monitored fire and burglar alarms. We want you to revel in the excitement that comes with purchasing a new home. You can always rely on us to make the risk management process that goes along with that undertaking as simple as possible. ...

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How to avoid home construction nightmares

When fantasizing about a beautiful new house or perfectly-planned kitchen, few homeowners conjure images of injured workers, stolen materials or major damage to a neighbors’ place. Yet construction and renovation projects can—and do—turn disastrous. As is often the case, a bit of advanced planning will save time, money and hurt down the line. The tips below offer guidance on what to do, and when, to ensure proper protections are in place throughout the project. Before Hiring a Contractor Check your existing homeowner and liability insurance As soon as you move from the dreaming to doing phase, call your insurance broker. You’ll probably need to add coverage for property damage and liability. Many high-end homeowners’ policies offer construction coverage for an additional premium but depending upon the scope of your project, you may need a separate policy. You’ll also want to review your umbrella liability coverage to confirm it is sufficient. If you aren’t sure, you can take this quick quiz which suggests the liability range for your personal protection. Include insurance coverage in negotiations with contractors We’ve seen many clients fall in love with a contractor and settle on a price, only to learn that they also have to pay for the builder’s insurance. Historically, contractors and subcontractors paid for their own insurance on their property, which covered injuries to their workers, and damage to others caused by their negligence. When a client foots the bill, it significantly increases costs. Which is why we recommend you discuss insurance when you talk fees, timing and the other important issues. Also, make sure the contract specifies that the contractor has a total liability limit that is at minimum equal to the budget for the entire project and that you are named as an additional insured on the policies. Before Starting Construction Verify the contractors’ insurance coverageGet copies of your contractor’s licenses and certificates of insurance for any related policies, including workman’s compensation and excess liability. Your contractor should also provide copies of these documents for any subcontractor. It’s also worth checking to make sure the dates are valid. Consider including protection systemsIt’s easier and less expensive to install wires or pipes when your walls are already opened, so now is a good time to upgrade home security. In particular, systems that can detect potential water leaks and allow homeowners to shut off the water remotely. This could not only give you a discount on your insurance premium, but help you obtain insurance if you have had prior losses. After one or two water-related claims, many insurers refuse to offer protection. Installation of this and other security features could make more markets available to you. It is worth noting that certain carriers actually require specific security measures be taken depending on the scope of your construction project. So it’s a good idea to call your broker prior to construction to confirm what your carrier requires and also discuss what systems are available on the market. Plan for security at the construction siteTheft of construction materials is all too common, so ask the contractor to identify what they will store on-site, as well as the protections they’ll put in place. Also have a plan to secure the site from nosey neighbors and adventurous children. You might consider including a video monitoring system in the area. During Construction Act fast if there is a problemConstruction involves challenges: delays, changes, unpleasant surprises in the walls or foundations….When you get a call about “a little problem,” keep an ear out for anything insurance might cover—injuries, property damage, or theft. If you aren’t sure, call your insurance broker immediately – they will be happy to talk through it with you. Together, you’ll sort out what’s covered by which policy, and if anyone was negligent. Every case is unique, so gather facts right away. When the Project is Complete Notify your insurance companyThey’ll need to verify that you have a valid certificate of occupancy and for major projects, they may send someone to inspect the new construction for safety and security. When everything is up to code, they will remove any construction surcharges.Keep all your recordsMake sure you’ve built a place to store the contracts, insurance certificates and any other paperwork generated by the project. If problems turn up later—and trust us, they often do—you won’t have to scramble to reconstruct who is responsible for what. No doubt, a renovation or remodel is a major undertaking (and if you’re renovating a New York apartment, it’s even more massive) but you can at least minimize the risks for your family and those working on your home. If you have any questions about your exposure on an upcoming project, we are always here to help. ...

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Why some homeowner’s premiums are surprisingly high

Here is a math problem that isn’t adding up for many of our clients: if their new house cost X, why is their homeowner’s policy premium based on a valuation that is significantly more than X? The answer is “replacement costs.” An answer, though, is not always the best explanation, so here, our team responds to some questions to help you better understand the concern. 1.  What are replacement costs exactly, and why do they exceed market value?Simply put, the price you pay to buy a home is different than the price you would pay to rebuild that home, for a variety of reasons. Foremost is the fact that insurance carriers focus on being able to cover the cost of rebuilding in worst-case scenarios. Often, that is a situation—a weather event, mostly—in which yours is not the only damage demanding attention. And when general contractors or materials are in short supply, costs skyrocket. (After Hurricane Sandy, for example, costs as much as doubled.) Further, high-end homeowners—and the best insurance carriers—want the job to be done right, so they are going to want to pay the most reliable contractors the price they ask. Obviously, homes in areas that are more susceptible to catastrophic loss, such as those by the beach or in wildfire zones, will have higher replacement costs. But cost-increasing shortages occur for other reasons too. During the pandemic, the price of plywood quadrupled as factories slowed production. And, in general, it is just much more expensive to replace houses and interiors these days, because of updated building codes, increased labor costs and advanced technologies. In fact, Bloomberg News declared “Building a Home in the U.S. Has Never Been More Expensive.” 2. How does a carrier determine replacement costs?This depends on the type of carrier. Mass-market carriers (such as Geico and State Farm) use an industry index that is based on square footage and geographic location. White-glove carriers, such as those we typically place clients with, send agents to inspect the home, and they take finishes and customizations into account as they make their estimate. 3. Do replacement costs cover like-for-like replacements?If you are dealing with a mass-market insurance carrier, not necessarily. Aside from meeting updated building codes, there are no guarantees. In general, the definition of “replacing” is unspecified and thus left largely to interpretation. So even though you put in specially treated redwood floors, the insurer might only cover the price of pressure-treated pine. Or though you bought a frame home, your coverage might require it to be rebuilt with masonry. However, with the policies we typically bind, the contracts obligate the insurer to make every effort to match the original materials. If you originally installed stained glass windows from a Venetian glass blower, we will find you a policy that potentially pays for their exact replacement, and if the particular craftsperson is no longer available, that insurance carrier will help you source an equivalent, or make up the difference. More to the point, if a rebuild exceeds the replacement cost, the carrier still covers it all, except in certain catastrophic-loss states like Florida and California. It is just such protection, of course, that raises the cost of premiums, as fulfilling such promises necessitates carriers building an insurance pool sufficient to cover those costs. Because you don’t want to be surprised in the event of an emergency, it’s worth confirming your replacement costs coverage with your insurance professional. 4. How do replacement costs work in the case of condos and co-ops?When you don’t live in a private home, the replacement costs in your homeowner’s policy cover all rebuilding from the walls in, while the building’s insurance carrier is responsible for what remains. In general, insurance carriers will not offer unlimited replacement costs for apartments. That makes it even more important to secure an initial inspection that results in an amount that adequately covers a proper rebuild. 5. What else do I need to know about replacement costs?The time to contact your insurance professional is before you purchase a home, because understanding the replacement costs and associated premiums could affect your buying decisions. At the very least, you will know what you are signing up for. Also, spend a moment to consider how much control you want to have over choosing the contractor or replacement materials or even how fast you want the job done. If you decide that you want your rebuild prioritized or replaced to your same standards, you need the type of coverage that guarantees such attention. Lastly, it’s important to review your homeowner insurance coverage annually with your insurance advisor. That way, your policy covers inflation or any recent home upgrades, which will keep you more adequately covered should anything happen to your home. Carving out time for such discussions is well worth the time and effort—as with any risk management program, an ounce of prevention goes a long way. Of course, should you need any assistance or need additional answers, we are available to consult. ...

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How to avoid gaps in coverage when holding property through an llc or trust

Affluent families and individuals, working with legal and financial advisors, are increasingly holding property through trusts, limited liability corporations (LLCs), and other entities. Typically, this creates a legal separation between themselves and the property for privacy, tax or other reasons, but if the insurance professional is not made aware of the setup, these entities, and the individuals connected with them, may not be properly protected. Unfortunately, miscommunication with insurance professionals is also happening more regularly. Take a client of ours, a California homeowner, who, transferred the ownership of their home to an LLC after we initially obtained coverage and failed to inform us about the switch during annual reviews. This became an issue when they were held responsible for a workers’ compensation claim stemming from a renovation, in which a worker said they were injured at the house and the contractor hadn’t maintained adequate insurance. While we initially reassured the client that their homeowner’s policy would step in and cover their liability if the contractor could not, it became much more complicated once we learned about the LLC. Since they hadn’t told us about the new structure, it wasn't named in their insurance policy, and the carrier did not have to cover claims against it. In most cases, insuring a home held in a trust or LLC isn't any more expensive than if you owned it directly. But it is necessary to work with your insurance advisor to make sure that there are no gaps in the coverage for either the property or yourself. What makes this a bit complex is that homeowners policies insure more than the home itself. They also cover the furniture and contents of the home, your property away from home, and your liability for a wide range of claims anywhere in the world. Generally, you can provide all this coverage in a single policy. You might be the "named insured," and the LLC or trust would be an "additional insured." Or it could be the other way around. Occasionally, you and the entity may each need separate policies – but a qualified broker will be able to coordinate the policies appropriately. Also, you want to make sure there is sufficient personal excess liability (umbrella) coverage that applies both to you and the entity. From an insurance point of view, the exact structure you pick often depends on the nature of the other policies you own. Also, you can't put the entity on your personal insurance if it is a commercial operating entity. For example, a farm, ranch, or any other enterprise with employees needs a commercial policy. Essentially, you may want to make sure that all these coverages are in place: For the LLC or trust Damage to the structure and property. Liability associated with the property, such as improper maintenance on your property. For you and your family Lost or damage to your personal property. Broad worldwide liability coverage. Your lawyers and financial advisors may have some additional advice depending on the reasons you established the trust or LLC. For example, sometimes clients are advised not to pay certain premiums from their personal accounts and rather to use accounts owned by the legal entity. And speaking of bank accounts, never deposit the proceeds from a claim by a trust or LLC into your personal account. That can cause complications you want to avoid with your insurance carrier and possibly the IRS. Of course, when paperwork mistakes are made, we do what we can to set things right. At first, with our California client, the family had to hire its own lawyer to deal with the workers' compensation claim while we negotiated with the insurance carrier on their behalf. Eventually, we were able to get the carrier to agree to backdate coverage of the LLC, and they started paying the legal bills. Thankfully a good ending, but an important lesson for others who are considering holding a property in a trust or LLC. ...

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Don’t invite risk to your next party

Time to celebrate, and we hope it’ll be a wedding, graduation party, fundraiser or summer soiree to remember—but only in the good ways. Which is why we feel duty-bound to pause your preparations and talk about minimizing risks for (just) a few minutes. Maybe it’s the particular lenses through which we view the world, but we’ve seen too many festivities ruined by the late arrival of tort lawyers. To make sure that doesn’t happen at (or as a result of) your next celebration, we’ve compiled a list of what can (and often enough does) go wrong at celebrations - along with ways to mitigate the likelihood of that happening. You’ll also learn how to protect yourself in the event something does happen, or at the very least, how to prove that you tried your best to prevent any mishaps from occurring. How to avoid the problem of… ...someone getting injured: Use locks, guards (or both) to ensure guests and staff can’t go anywhere off limits. Pools are one of the highest risks at a celebration. Best to seal it off if no one is supposed to swim. For a pool party, we recommend hiring a lifeguard, ban diving, and clearly mark the deep and shallow ends. And we are not just talking the warning signs painted on the pool – place additional signage around the pool area for extra precaution. Trampolines are also danger zones, so unless you like to roll the die, keep guests’ feet on the ground. ...someone damaging or stealing items: If you have rare art or other valuables in the home, make sure to think through the likely flow of people to ensure nobody gets jostled into the Picasso or climbs on the Calder. Alert staff to anything needing special protection and, if you are still worried, hire someone to make sure that people keep a respectful distance for the Diebenkorn. ...damage to a rental space: While it’s a fabulous idea to have your anniversary party in the Metropolitan Museum of Art, hired staff should understand the venue’s rules. For example, no hanging the “Congratulations on 50 years” banner on the Temple of Dendur. (You laugh but....) ...a guest drinking and driving: The law increasingly holds whoever serves liquor is responsible for injuries caused by intoxicated guests, so give the bartender(s) clear cutoff instructions. It’s also a good idea to have someone watch guests as they leave so they can flag a cab for those that clearly need one. Alcohol and teenagers are a particular concern—know that whether or not you gave the okay for a keg party, you might be ultimately liable if the drinking happens in your child’s home. ...someone harassing or harming a high-profile guest: When the gossip columns are abuzz about the guest of honor at your upcoming book party or fundraiser, prepare for some unwanted attention. Have security in place to deal with paparazzi, gate crashers, or worse. And how to protect yourself in the event a problem happens... ...don’t assume you are covered through your homeowners or umbrella liability policy: Purely personal events in your home are usually covered, but it gets trickier if the event is, at all, business-related. It’s one thing to invite a few clients to your holiday party, and another to host a partners meeting. Even a fundraiser for a nonprofit organization could be iffy. Therefore, it is best to speak with your broker before the invitations go out so we can advise you on the best ways to mitigate your risk and ensure you are properly covered. ...put insurance in writing when hiring vendors: Have every contract, from renting a hall to signing on a caterer, explicitly state which party is responsible for liabilities and which policies must be in place. The expense can be significant, so negotiate insurance when you discuss other terms. A cheap catering hall with an expensive insurance bill is no bargain. Contracts should also specify that any subcontractor must have appropriate coverage. ...talk to your broker about whether you need special event policies: This coverage is typically combined with cancellation insurance. Note that these policies are precise in what they do and don’t cover. You might be able to make a claim if the bride gets pneumonia, for example, but not if it’s a case of cold feet. To sum it up, you should add checking your insurance coverage to your party planning list. Ideally you should call your broker before you sign a contract to rent a space or hire a caterer. That way you can get the details right, banish the dark thoughts of potential disasters, and go back to planning a celebration that will delight your guests and honor the occasion. ...

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